QUESTION
i) Differentiate between internal and external environment in which an organization operates
• Explain that the organization is an open system and it is affected by the environment
• Distinguish the two types of environment ,i.e, the internal environment which is mainly the organizational culture
• The external environment consist of the specific and the general environment
• The specific environment consists of the followings: the customer, the supplier, the advocacy groups, the industry regulations, the competitors
• The main components of the general environment are: the political factors, social factors, economical factors and the technological factors
ii) How managers can reduce the influence of the external environment on their organization?
• Explain that the scanning of the external environment is very important for any organization to succeed due to the beneficial and adverse impact that the external environment may have on the organization
• The ways in which the managers can influence the specific environment are as follows:
i. Customer - forward integration, lower prices than competitors, distinctive brands, cater for the need of the customers
ii. Competitors - horizontal integration, benchmarking, improve cost of production to charge lower prices
iii. Suppliers - backward integration, increase bargaining power by looking for more suppliers
iv. Industry regulation - abide by the regulation
v. Advocacy group - respecting environmental factors, funding environmental project to improve image of the organization
• The ways in which the managers can deal with the general environment are:
o Political factors - lobbying the government, monitor political stability
o Economical factors - monitor the inflation rates, taxation policy, monetary policy on the organization, use of hedging techniques
o Social factors - ageing population and provision of products and services for this target group
o Technological factors - use of technology to bring new products, improve quality, increase efficiency of the different processes and thus reduce cost